Investors have intensely focused on expense ratios over the past decade, overwhelmingly choosing to invest in mutual funds with the leanest costs. Despite the fact that investors care so intensely about expenses, there are still opaque ways that funds can spend money on research--without it showing up on an expense ratio or anywhere else. The costs to investors are still very real.
In fact, since at least 2003, Morningstar researchers have been calling for funds to disclose what they spend in these so-called "soft dollar" arrangements. (To give credit where it is due, the SEC has cracked down on some more-egregious practices in the intervening years.) Now, a new European regulation may also have the salubrious side effect of shedding some sunlight on these practices in the United States.